Keurig sees five promising signs for coffee business

BURLINGTON, MASS. — Sales fell 2.1% and volume/mix dipped 0.3% in Keurig Dr Pepper’s US Coffee segment in the first quarter ended March 31. Still, the results showed an improvement from the 2023 fiscal year, and Timothy P. Cofer, incoming chief executive officer, gave five reasons why US Coffee results should keep improving.

Burlington-based Keurig Dr Pepper Inc. had net income of $454 million, or 33¢ per share on the common stock, in the quarter, which was down 2.8% from $467 million, or 33¢ per share, in the previous year’s first quarter. Sales companywide increased 3.5% to $3.47 billion from $3.35 billion. On a constant-currency basis, sales rose 2.8% driven by net price realization of 3.1% that was offset partly by lower volume/mix of 0.3%.

“Momentum in our US Refreshment Beverages and International segments remained healthy, and US Coffee results showed meaningful sequential recovery,” said Robert J. Gamgort, outgoing CEO, in an April 25 earnings call.

In line with a previously announced leadership change, Gamgort stepped down as CEO on April 25 and was appointed executive chairman of the board of directors, effective April 26. Cofer, previously chief operating officer, became CEO.

Keurig Dr Pepper’s stock on the Nasdaq closed at $33.84 per share on April 25, which was up 4.6% from a close of $32.34 on April 24.

In US Coffee, sales dropped to $911 million from $931 million, driven by a net price decline of 1.8% and a volume/mix decline of 0.3%. K-Cup pod shipments strengthened on a sequential basis but still declined 1.1%.

In US Coffee in the 2023 fiscal year, sales fell 5.4% and volume/mix declined nearly 8%. In the fourth quarter the declines were 10% in sales and 11% in volume/mix.

“As expected, net sales strengthened considerably relative to the fourth quarter and decreased at a more modest low single-digit rate in Q1,” Cofer said. “Notably, volume/mix was basically flat, improving from a high single-digit decline last year.

To lead off the five elements giving the company confidence in coffee, Cofer noted a sequential improvement in pod shipment trends. Second, momentum is building in owned and licensed brand market share.

“In Q1, we grew owned and licensed total distribution points at a double-digit rate,” he said. “We increased display activity and supported our brands with higher marketing. In addition, we made tactical adjustments to appropriately align our promotion strategy.”

The third element was Keurig and Keurig-compatible brewers continuing to gain share in the coffee maker category. Fourth, productivity in the quarter drove healthy margin expansion and funded reinvestment, Cofer said.

Finally, partnerships remain strong. Italian coffee company Lavazza Group will transition to a licensed brand from a partner in the second quarter, Cofer said. Keurig Dr Pepper also reached agreements to welcome Brooklyn Roasting Co. and Canadian brand Kicking Horse to its roster, he said.

“And just this morning, we are announcing the addition of Black Rifle Coffee as a new partner,” Cofer said. “Black Rifle Coffee’s success in the coffee industry is already well-established, and their decision to evolve to a Keurig system partner speaks to the full value proposition of our stewardship of the single-serve category,”

Innovation is on tap as well.

“When launched, our new proprietary K-Rounds plastic- and aluminum-free pods and Keurig Alta brewers will enable consumers to brew a wide variety of hot and cold barista-style beverages from a single machine using a pod that can be easily and sustainably disposed,” Gamgort said. “This system has the potential to redefine how consumers brew coffee for decades to come, and we’re excited to begin beta testing later this year.”

In US Refreshment Beverages, sales increased 4.3% to $2.09 billion from $2.01 billion, driven by net price realization of 5.6%, which was offset partly by a 1.3% decline in volume/mix.

“Our Dr Pepper Creamy Coconut limited-time offering is launching as we speak, just in time for the summer season,” Cofer said.

He added the restage of the Bai WonderWater is rolling out and Keurig Dr Pepper will partner with the US gymnastics team during this year’s Summer Olympics in Paris.

“We expect these collective activities will have a larger impact in the back half (of the year),” Cofer said.

In International, net sales increased 12% to $464 million from $415 million. On a constant currency basis, sales advanced 7%, driven by volume/mix growth of 4.8% and net prize realization of 2.2%.